There’s an interesting debate going on right now among all the noise over the broadband portions of the American Recovery and Reinvestment Act also known as the stimulus bill that is suppose to create and preserve jobs. The question revolves around the requirement for projects to use “American iron, steel and manufactured goods.” That’s section 1605 for those of you scoring at home.

The question in question of particular interest to the telecom market is what exactly constitutes “American made” manufactured goods?

In a market where Anywhere Networks are pieced together from manufacturers all over the globe, is it even feasible to say nothing of economic to even build and “all American” network. 

Zhone Technologies’ CEO Mory Ejabat is getting some publicity for comments filed with the NTIA in which he argues that because the actual intent of the stimulus bill is to create and preserve jobs in the U.S., the “buy American” clause should be interpreted in a strict sense. He also argues that the level of American labor content should be a strong factor in determining whose equipment is used as part of the $7.2 billion effort to expand broadband. Is it self-serving given that Zhone is one of the few remaining vendors with significant domestic manufacturing operations? Of course, but put in Zhone’s position I’d argue the same way. It’s also a straight forward argument.

The more important question, though, is what exactly constitutes American made? Even will manufacturing operations in the U.S. one could argue that a product isn’t American made since it certainly uses piece parts created in other countries.

Is it only American if it’s put together in the U.S.? Does the location of a company’s headquarters matter? And what about all the non-manufacturing elements behind products? Is a product not “American made” if the software design is outsourced to Mumbai?

It’s also interesting that one of the first questions we received during Yankee Group’s webinar on the stimulus package was whether “buy American” applied to service providers. What is to prevent a service provider from outside the U.S. to apply for government funding to provide broadband in areas currently without broadband? Imagine the apoplectic fits such a move would generate in Washington DC?

The broadband sector is receiving growing attention worldwide as governments recognize the crucial role that broadband will play in economic recovery. The emerging Anywhere Network™—a powerful, pervasive digital network that can connect all people, at any time, in any place—presents an opportunity to create more jobs, increase productivity across a country’s workforce and develop new solutions for health care, education, transportation and energy.

In the U.S., three key agencies are still sorting out how to allocate the broadband funds, and to whom, and many details remain unclear. Despite this flux, companies who seek to capitalize on the energy around broadband must understand the current state of thinking and the likely direction, nature and size of project funds being distributed throughout the world.

Yesterday, Vince Vittore and I hosted a webinar about the impact of broadband regulation on the global economy. The presentation included a breakdown of stimulus funding in the U.S., an overview of rural broadband usage and adoption and a discussion of global opportunities.

The webinar runs about an hour: audio (mp3) and slides (pdf).

For Geoffrey Chaucer’s pilgrims, arriving in the cathedral city of Canterbury in Kent ended a journey through the garden of England. But for Professor Shyqyri Haxha, Canterbury marks the beginning of a trip to far wilder parts.

Until December 2008, Dr. Haxha was a lecturer in telecommunications at the Canterbury-based University of Kent. Today, he is CEO of Post and Telecommunications Kosovo (PTK).

So what strategy is the new executive pursuing in one of Europe’s poorest and youngest economies, I asked?

His number one goal: connecting all Kosovo’s schools to the Internet with fiber – and he’s aiming to do it before year end.

Surprisingly, Dr. Haxha already has the funds; PTK is cash rich. He hopes that an upcoming RFP for the estimated €80 million project draws qualified bidders unafraid to work in this corner of Europe.

Land-locked Kosovo remains an uncomfortable hangover of war in the Balkans. Under UN administration for a decade, this disputed region of 1.8 million inhabitants declared the Republic of Kosovo in February 2008.

That status is still not widely accepted. Indeed, neighboring Serbia views Kosovo as part of its sovereign territory.

Political limbo makes life tricky for Kosovo’s telecom operators. Kosovo still lacks a national dialling code from the ITU, the UN agency governing allocations.

Instead, Kosovo routes international traffic via Cable & Wireless-controlled Monaco Telecom. It’s an arrangement that doesn’t come cheap. Monaco Telecom keeps about 40% of the value of each telephony minute.

Then there’s the issue of piracy. Kosovo is dotted with clandestine cell sites where rogue operators are effectively stealing voice minutes.

Not just locally-generated, but also international roaming traffic is up for grabs: Half a million Albanians holiday in Kosovo every year (PTK hopes to win a piece of this action by taking a 30% stake in Albania’s 4th mobile license).

As a drawn-out NGN backbone upgrade with Alcatel Lucent concludes, PTK’s legitimate competition is hotting up. Telekom Slovenije has ploughed almost €200 million into newcomer Ipko Net.

Now the government is looking to privatize PTK – currently Kosovo’s most profitable company – but how this will be done is unclear.

So with all this on his plate, why is Dr. Haxha prioritizing fiber to schools? Dr. Haxha asserts that he’s serving his primary customer: More than half of Kosovo’s population is under 25. It’s Europe’s youngest.

But education is poorly resourced, and investing in infrastructure that can help upskill the young offers a very direct way to improve Kosovo’s social and economic conditions.

Nevertheless, the choice of fiber access is surprising, particularly since neighboring FYR Macedonia chose WiFi mesh for a similar USAID-funded project.

But Dr. Haxha is resolute: “Fiber offers a future for the long term.” He’s also sending 40 engineers for training at his former university.

In a prior Yankee Group feasibility study for a nationwide WiFi/WiMAX network in the Balkans, we concluded that device affordability (eg: laptop, smartphone) was a major stumbling block, irrespective of connectivity platform.

Equipment subsidization for individuals and groups is often a necessity, as Dianne Northfield and I argued in a report outlining the ‘motive ingredients’ needed to effect connectivity-driven social transformation. And perhaps Nicholas Negroponte could also help Kosovo, as per Yankee Group CEO Emily Green’s recent discussion with the One Laptop Per Child chairman.

Because his wife and children remain in the UK, Dr. Haxha still pays BT for a copper-based home broadband line. That gives him a personal stake in the current discussions about Digital Britain.

His view on the broadband investment case? “Any economy needs fiber if it’s going to speed ahead.”

I’m visiting the world’s third fastest broadband country after South Korea and Japan. That’s right, I’m in Romania.

Here, a government stimulus package did not create a high-speed broadband infrastructure. Instead, groups of tech-savvy neighbors just started stringing fiber optic cabling between buildings and trees. They became micro-ISPs by default.

Today, Romania’s 800-odd reƫea de bloc and reƫea de cartier (apartment block and neighborhood networks) are consolidating, but the patchwork of home-grown fiber remains.

Perhaps it is not pretty to look at, as these pictures suggest. But so what? Almost half of Romania’s existing fixed broadband subscribers now enjoy connectivity at speeds vastly exceeding 5Mbps, according Akamai traffic statistics. The problem is that broadband penetration doesn’t extend far from main urban areas.

Considering the Pirate Bay debacle, it’s also worth noting that Romania’s neighborhood fiber networks were built explicitly for peer-to-peer file sharing. That’s partly why many Romanian broadband packages are tiered by geographic access.

For about $15 a month you’ll get a local (neighborhood) bandwidth speed of 100Mbps, a metropolitan (city) speed of 50Mbps and an ‘Internet’ (national & international) speed of 10Mbps.

True, cable companies RCS&RDS and UPC and are trying to curb Romania’s considerable torrent habits. They are buying up the micro-ISPs and integrating mobile and TV propositions. But Romania’s unique genesis has bred a content-thirsty consumer irrespective of fixed or mobile platform.

This will drive a tripling of Romania’s broadband penetration between now and 2012, according to Yankee Group’s global Anywhere Index of broadband lines.

Let regulators try to prescribe how high-speed broadband infrastructures are built and managed. But Romania’s continuing journey proves that there is indeed no one route to – or from – Rome.

I found myself stuck in one of the all-too-common, huge traffic snarls on my way for a client meeting in Mumbai, India and wondered if professionals in that city and in India, overall, could telecommute and do their bit to prevent traffic congestion and make a dent in the air pollution. In conversations with friends and colleagues I was surprised to learn that telecommuting was not practical in Mumbai and Bangalore, one reason being that reliable high speed broadband connections are still  not available at a reasonable price. As someone explained to me, the practical definition of broadband in major cities in India today is a “sometimes on” connection with speeds ranging from 64-256 Kbps. Though national policies have been defined to provide for an ”always-on” connection with minimum speed of 256 Kbps, adherence to that policy is a different, seemingly unrelated issue.

It is evident that consumers would tolerate any speed when given a choice between no broadband and some broadband! Broadband adoption stands in contrast to the huge strides made in introducing mobile phones to a large middle class population. Setting aside the fact that broadband penetration as of June 2008 had only reached 4.38 million subscriptions (less than 1 percent of the population) according to the Telecommunications Regulatory Authority of India (TRAI), I wanted to highlight the challenges faced by this small percentage of the population that has broadband:

·     Frequent Downtimes: Most ISPs have higher downtimes compared to mature economies, which occur due to a variety of reasons such as power outages, cable faults etc. The downtimes vary from a few hours to a couple of days in a month.

·     Cap on usage: This is almost an unwritten rule followed by Indian ISPs where heavy users are capped either by data limits (as low as 400 MB to 1-2GB per month). Traffic-shaping is applied to links experiencing congestion during high-usage times of day. when a certain limit is crossed. Some ISPs like BSNL and Bharti offer unlimited downloads for an extra fee and have also introduced high speed BB packages.

Sadly, in India broadband adoption has not lived up to the promise from a few years ago. The absence of a wider base of users and the lack of active promotion of content creation in areas such as education, agriculture, health care, and e- governance in regional languages make it all the more difficult for benefits of connectivity to be shared amongst everyone. It is unlikely this situation will change dramatically if the “rationing” mindset that limits data downloads is not replaced by a more progressive outlook that can take advantage of a middle class willing to pay for reliable high speed broadband access. Yankee Group believes that while the widespread adoption of broadband is critical in supporting social and economic prosperity in India, it is also as important to deliver high speed broadband reliably to customers that have it today.

These days it seems one cannot escape a conversation before the topic of app stores is broached. Perhaps this is because I am a tech analyst (providing this reason a good likelihood of accuracy). But for those not professionally engaged in technology, the incessant Apple commercials touting that they have an “app for that”, the launch of Blackberry World, frequent G1 advertisements, and the relentless press coverage of the “iPhone killing” Palm Pre would make all aware that smartphones have arrived.

But does this chatter really turn into consumer dollars? This was the question we sought to understand in the recent Yankee Group Consumer survey. This online survey, which was fielded in mid-April revealed a number of interesting points.

Of the 1,432 survey respondents 41% (583) said they were very likely or likely to purchase a multimedia handset with a data plan as their next phone. To me, this is a pretty astounding number and indicates the market is primed for a converged device a wildly different scenario than the unsure days leading up to the launch of the first iPhone. Interest is not restricted to the young as evidenced by the more than 14% of those 65+ who were very likely or likely to buy a smartphone. Income also presented little resistance to interest as more than 30% of those earning under $10,000 were also very likely or likely to buy. No gender gap in interest existed either with both men and women clamoring in equal regard for multimedia handsets.

These desires are particularly interesting in light of the current economic turmoil which has many respondents saying they will spend less on devices and services in the next 12 months. If their intent to spend less holds true and they desire a smartphone with a data plan they will be forced to pare back on other services to afford their increased monthly mobile spend. Other SPs should be concerned that their portion of walletshare may be reduced as a result.

Now that interest has been established the next logical question is what brand/platform of phone will consumers want. Everyone wants an iPhone, right? Not exactly. Apple was the second most desired handset with Blackberry leading the pack. Nearly 44% wanted a RIM device while 30% expect to purchase an iPhone. This survey was fielded after iPhone 3.0 was announced as well meaning that that release may not tip the scales in Apple’s favor. The results also indicate that Google has its work cut out for it as less than 4% of respondents were planning on buying an Android based phone.

RIM’s success could be attributed to a number of factors – not the least of which is an increasing demand gap between it and iPhone in all age segments over 35. The data also likely indicates a desire for consumers to remain with their current carrier or the attractiveness of the range of price points that Blackberry is offered at. Blackberry also offers devices on all major carriers while Apple and Google currently do not. In order to win over those that do no want their devices and platforms manufacturers must consider releasing devices through multiple carriers, a lesson Palm should learn quickly.

Further analysis of interest – cut by carrier will likely yield interesting results in platform interest. Will Verizon subs be uninterested in iPhone because their carrier does not offer it? These types of questions and more will be looked at by Andy Castonguay in an upcoming report.

So, we just got wave 2 of the consumer survey back last night. Over 1,500 north American consumers telling us about their comms, devices and attitudes to digital media and transactions.

Those who know me know that I love reading the open ends; and today I wanted to share a question we put at the end of the survey where we invite respondents to write an open letter to their service providers. This wave we got 2,400 letters, even more than the 1,700 last wave. I read them all and here are my thoughts.

The nice thing about these letters are that we deliberately put it at the end, typically 10-15 minutes after we’ve gathered quantitative feedback on service providers. Within that time, we’ve asked about media, TV, Internet and devices and so the respondent should be quite detached from the quant questions that head up the questionnaire.

Obviously, we get more letters to the bigger providers. AT&T got 430 letters, Comcast 268, DirecTV 151, Dish 136, Sprint 128, TWC 129, T-mobile 153, Verizon 377, Rogers 61. We ask about 65 providers in total, but these are the most numerous.

Reading these open ends also gave me a chance to review Tracfone. In my last blog on pet names for phones, I had noticed that few people, except Tracfone customers, name their phone after the service provider. I promised last time to try to understand why this is. In wave 2, there were 59 letters to Tracfone and I subjectively classified each as a positive, negative (abusive or constructive) or neither. Tracfone is 29 positives and 17 negatives; which I suspect will make them the only company to get more positives than negatives, and comments overall tend towards the rant.

What do Tracfone customers say? On the positive “Great service, nice people, reasonable prices, unpretentious”! On the negative its about handset choice, coverage and the ubiquitous whinge about price and technical issues (but no more there than all the rants).

Other companies that got generally attractive comments were AT&T and DirecTV.

So, (and this is based on anecdotes, of course), it seems that if you want customers to think well of you, be an honest partner. How old fashioned it is to think that customers are people, not account numbers! Whether Tracfone does this deliberately or by accident, I don’t know. And I’m not pretending to know whether the marginal EBITDA improvement justifies whatever costs are associated with at least appearing to be an honest partner. I’ll let our analysts do that.

Last wave, and this wave, I’ve been trying to get a sense of what matters to people when you don’t lead them with ideas. Here’s my synopsis of what people care about:

1. Price, especially the big carriers like AT&T and Verizon
2. Technical stuff, like coverage and outage/dropped calls

…no surprise there. Now for the other comments in my perceived order of how often they appear.

3. Off-shore call centers, and particularly not being able to understand the person at the other end of phone
4. Instantaneousness. Not getting a fix in real-time/waiting more than 5 seconds for a username and password
5. Marketing. Especially unsolicited phone calls
6. Lieing and hidden charges. Prices that aren’t really as advertised. (Now, I’m sure the marketing is factually accurate, but ‘perception is reality’. It doesn’t matter if the customer got it wrong, their level of irritation is based on what they thought they heard, not what was said)
7. A feeling of not being rewarded for loyalty
8. Poor billing (inaccurate or incomprehensible)

There is also a common thread of comments for pay TV providers, characterised by “Don’t change the channel line up quite so often”, “Give me the channels that I thought I was going to get”, and “Don’t put porn channels in the listing next to kids channels”. Being able to have more control over which channels appear in the listings might be popular.

I’m getting into this. Statistics are evidential and very powerful, but anedcotes are closer to the heart. My next blog will be to compare the letters from people who say they are “likely to churn” against those that are “unlikely to churn”. I want to compare them to our formal question about churn reasons.

P.S. We’ve just introduced a system that allows non-survey clients to get access to hard data by trading some of their inquiry hours. Survey clients get all the data and analysis as part of their subscription, but if you haven’t joined that club yet, let me know and we’ll get you up and running or talk about trading hours for data.

I’ve been tuning into the Apple earnings call, and have been amazed at how well they are weathering the current economic downturn (compare their results with Nokia’s and you’ll see what I mean). But on that call, I just heard one of the odder things I can remember, namely that revenue recognition for iPhones sold after March 17, 2009 will be deferred until the iPhone 3.0 software f is released. Let me say that again in a different way: From the point of view of its business accounting, Apple won’t consider the iPhone 3Gs shipped to customers since March 17 sold until iPhone 3.0 comes out. For any normal hardware business, that would be highly unusual. For a consumer electronics company that lives on tiny margins, that’s just crazy talk.

What I find simply astonishing is that none of the financial analysts are asking questions about this strange policy; they’re doing their usual drilling down into the details of how the margins and ASPs of all the products have changed. But to me, the big news here is hiding right in plain sight: Apple expects iPhone 3.0 to have a big effect on its business results going forward. And three months from now, I expect people will be asking themselves how they missed it.

I said in my recent report that Apple is reinventing the mobile phone business by creating Anywhere experiences. I think Apple just told the financial analysts that it doesn’t intend to rest on its laurels.

FOLLOWUP: Josh Holbrook here noted that I had missed the fact that Apple did this last year as well with iPhone 2.0. Another commenter noted that Apple only moved the revenue from about 500,000 iPhones (the ones sold between March 17 and the end of the quarter) into the next quarter or two, resulting in only a few million dollars of revenue moved. All true.

But the reason that this has piqued my interest is that Apple already defers the majority of revenue on iPhones by spreading out the purchase price over 24 months. The reason it has given for this practice is to allow it to provide free upgrades. So why does Apple now feel it necessary to further defer revenue, when it already has an accounting model in place to deal with this issue?

Perhaps my befuddlement will make more sense if I ask a slightly different but related question: How many companies hit by the recession are trying to defer reporting revenue and profit they have already delivered on?

At the moment, I only know of one of them.

FINAL UPDATE: Josh Martin and I had chat with Apple VPs Greg Joswiak and Eddie Cue about this topic. It turns out the accounting rule they are following to the letter has its origins back in the software industry when unnamed companies would ship and recognize revenue for unfinished software products. So once a set of software features for a product is announced, Apple won’t recognize revenue for those products until the features are shipping with the product.

Despite Apple’s protestations that this is common practice, I argue that it is anything but common in high tech business today, accounting rules or not. But kudos to them for wanting to play by the letter of the rules; the Anywhere Economy could use a whole lot more of that.

Hardware and software have long been separated. But in the increasingly converged world the two are becoming indistinguishable, merging into a unified user experience. Such is the philosophy with Pure Digital’s Flip Video. The company which sells low cost to more expensive HD cameras provides more than just a capture device by embedding easy to use editing and sharing software.  But this blog post is not about mega market trends (ok, maybe it is a little). Instead, it is about my experience with the Flip Mino HD.

I won’t delve into form factor or storage capacity because many sites can do the Flip more justice than I in that regard. But what is important is the experience from capture to editing to sharing. While I am not a rookie when it comes to video editing (my program of choice is iMovie ‘09) but it took time and effort to become adept at it. Time and effort are two things that manufacturers cannot expect the mass market to afford to their products.

On to my experience of filming the fly over of Fenway Park on opening day. After capturing the jets flying over Fenway I plugged in the Flip. The sharing software installed automatically. Within moments I was viewing the clips from my camera in the Flip interface. After downloading the clips to my PC I was presented a few options from creating a movie to sharing the clips, of which the quality of the resolution surprised even me. Before making my movie, I edited the clip down from three minutes of waiting for the jets (and the oft incorrect exultations of “Look there they are”) to the five seconds in which the jets zoomed by the window. Easy enough. By moving the start and end points to where I wanted them and clicking ok my clip had been trimmed. A few moments later I was creating my movie by combining a few clips.

Making a movie was a simple drag and drop interface that made adding a title, music, and credits as simple as a few button clicks. Sharing the completed file was just a click or two away. Anyone who buys a flip – regardless of their technical saavy could create a video and share it within a few minutes. And there-in lies the beauty. Even is competitors like Canon or Sony decide to release their own Flips – they will be hard pressed to match Flip’s success unless they too offer the entire experience.

Overall, what I took away from the experience was that Flip helped bring video editing to the masses. In truth there are a lot of people such simplicity would not appeal to. You cannot add animated titles, picture in picture, geotagging, etc. But for the mass market that wants a simple to use product to share videos, Flip has accomplished its task. Without the software/experience it’s easy to think that Flip would not have been nearly as successful as it has been. Clearly, convergence is happening and software and hardware must combine to make a product greater than the sum of its parts.

Sample Below:

Boston Marathon